Spain's unemployment rate reaches record high

Nearly 55 percent of Spanish youth under 25 years out of job as unemployment rate surges to 26 percent in final quarter.

Spain's unemployment rate jumped to the highest in 36 years with the rate expected to continue escalating [AFP]

Spain's unemployment rate has surged to a modern-day record of 26.02 percent in the final quarter of 2012 as nearly six million people searched in vain for work in a biting recession, official data shows.

The jobless rate data released on Thursday climbed from 25.02 percent the previous quarter, reaching the highest level since Spain returned to democracy after the death of General Francisco Franco in 1975.

The story for young people was even grimmer: the unemployment rate for those aged 16 to 24 soared to 55.13 percent, up from 52.34 percent the previous quarter.

The result shattered even the modest expectations of Prime Minister Mariano Rajoy's government, which had been forecasting an unemployment rate of 24.6 percent by the end of 2012.

"It is a very, very high figure," said Soledad Pellon, market strategist at IG Markets in Madrid.

"The expectation is that this figure will carry on growing during 2013.

This year will still not be a year in which we will see job creation," she said.

International markets expected the Spanish unemployment rate to peak at 27 percent in the next two years, Pellon said, forecasting that the rate could hit up to 26.9 percent in 2013.

An extra 187,300 people joined the jobless queue, which reached a total of 5.97 million people in the final quarter of 2012, a National Statistics Institute report showed.

Budget squeeze

There were 8.33 million Spanish households in which every potential worker was unemployed, it said.

Millions of Spanish workers lost their jobs in the wake of a 2008 property crash, which brought the construction industry to a halt and left the country's finances in a mess, and the labour market has yet to recover.

Spain, the fourth-biggest economy in the 17-nation single currency area, has since embarked on a programme of spending cuts and tax rises to save $194bn between 2012 and 2014, prompting mass street protests.

The government has vowed to lower the public deficit from the equivalent of 9.4 percent of annual gross domestic product in 2011 to 6.3 percent in 2012, 4.5 percent in 2013 and 2.8 percent in 2014.

But the budget squeeze has hurt economic activity.

In recession since the end of 2011, the economy contracted by about 0.6 percent in the latest quarter, its steepest dive in more than three years, according to a separate report this week by the Bank of Spain.

The Spanish economy suffered as a buying spree ahead of a September 1 sales tax increase evaporated in the final quarter, it said.

Spain's bad loan-laden banks are undergoing a drastic restructuring with the help of a European Union rescue loan of up to $132bn.

Over the whole of 2012, the Bank of Spain said economic output fell by 1.3 percent from the previous year. That was slightly better than the government's forecast for a 1.5-percent contraction.